Despite the massive meltdown in crypto prices early last year, the bounce back in Bitcoin in June has piqued the interest of investors once again. As one friend messaged me when Bitcoin rallied above the $10 000 mark in late June, “the crypto rollercoaster is rolling again. Strap yourself in.”
Fool me once though. After suffering an 80% decline in my Bitcoin investment (although this has improved to just a 10% loss at present), I vowed I would never make such an irrational and uninformed move again.
To assist me in my quest to find out more about the world of crypto investing, I had a chat to Ran Neuner – aka @cryptomanran – Host of CNBC CRYPTO TRADER and Founder of Onchain Capital/Advisory.
While this chat has not prompted me to increase the percentage of my portfolio I have allocated to cryptos (0.5% – all in Bitcoin), Ran’s advice for investing in this asset class does make a lot of sense for people with a risk appetite for this sort of thing.
Here is the Q&A from that chat.
Wealthwoke: What role do you think crypto’s should play as part of a diversified investment portfolio?
RN: Although crypto is a brand new asset class, it’s the fastest growing from an investment point of view and has made more money for people than any other class in such a short space of time. With that in mind, it’s a high risk asset class, unproven and uses new technology. While it may work, we don’t know what we don’t know. People need to realise the risks and don’t go all in on crypto. Rather, they need to apply a rational approach in terms of investing.
That said, it would be almost negligent of an asset manager/investor not to have some exposure to this asset class. A small investment in Crypto may yield a small loss but if the tech is anywhere near as disruptive as it seems , it could lift the entire portfolio.
Wealthwoke: What % of your portfolio would you recommend invest in crypto’s?
RN: For people who don’t like a lot of risk, 1-2% could be in crypto or blockchain type investments. For less risk averse people – around 6%-10% is probably ok. But it is up to each individual based on their risk profile.
Wealthwoke: How would you structure your crypto investments between the various crypto’s?
RN: The smartest thing is to give your money to a money manager who specialises in crypto investing. If you insist on managing it yourself, apply a systematic approach.
First choose the percentage of your total assets you feel comfortable investing in cryptos. Then choose how you want to allocate between the various sub-sections of crypto assets, such as Crypto Currencies or Utility Tokens.
(FYI – The difference between these two sub-categories is that currencies are designed to be a store of value and a medium of exchange (Bitcoin/Litecoin/Monero). Utility tokens are tokens that allow the use of a network (Eth, Trx, EOS ). Tokens can be broken into further sub-sections such currency, security, utility, equity and debt. A good article explaining these token sub-categories is https://www.bitcoinmarketjournal.com/equity-token/.)
You then need to look at the addressable market that you believe the protocol may disrupt (eg Bitcoin will disrupt Gold), evaluate how big the opportunity is and how quickly it will happen.
Finally, you can select the individual protocols, coins or tokens you want to invest in based on the technology stack and the teams behind it.
A diversified portfolio reduces your risk. A good option is to invest in a crypto index, which tracks the performance of a number of underlying cryptos.
Wealthwoke: What’s your view on libra and how will it impact the crypto market?
RN: Libra is amazing for two reasons. It puts Facebbook at the forefront of negotiating legislation for crypto, which means legislators cant drag their feet anymore. Secondly, it gives 2.2 billion people access to cryptos and fee free transactions. If successful and not blocked by regulators, it could be the biggest financial disruption of our time.
Wealthwoke: What was behind the recent rally in bitcoin?
RN: Bitcoin was oversold – it went from $20k to $3k and its now coming back to equilibrium. There has been a lot of adoption and infrastructure in the mean-time. A year ago people didn’t know if it would survive today there is absolutely no doubt.
Wealthwoke: What is your long term (5-10yr) price outlook for the main crypto’s?
RN: I believe it will continue to be one of the best performing asset classes.
Wealthwoke: What are the biggest risks to avoid when trading crypto’s?
RN: The biggest risk is how you manage it. There are no intermediaries between you and your money if you invest directly. If you make a mistake (i.e. you lose your “private key” – a type of pin), you lose your money.
As a new asset class, there is also latent market risk and all that comes with it – legislation; will the technology work?; and the scalability of various blockchains on which it is built.